Key insights:
- A business loan is designed for business-related expenses, while a personal loan may be used for a wider range of costs, depending on the lender’s terms
- Some lenders may allow personal loans to be used for business expenses, while others restrict business use, so always review the lender’s terms before applying
- Business loans may offer higher borrowing limits and help build business credit, but they may require business financial documents, collateral or a personal guarantee
A business loan is designed for business expenses, while a personal loan is tied to your personal finances and may have broader use depending on the lender’s terms. When comparing a business loan vs. personal loan, the right choice typically depends on how much you need to borrow, how you plan to use the funds, whether your business has established financials and how much personal responsibility you’re comfortable taking on.
Let’s discuss the differences between business loans and personal loans, the pros and cons of each and which is the best option for your specific needs.
What is a personal loan?
A personal loan allows you to borrow money to cover certain costs and pay it back over a set period. The terms can vary quite a bit from lender to lender. For instance, interest rates may be fixed or variable. That said, personal loans are often unsecured, which means you don’t need to put up any kind of collateral to receive them. Generally, however, the loan amounts are lower than a business loan.
A personal loan can typically be used for many purposes, such as consolidating debt into a single, manageable payment, planning to make improvements to your home or covering business expenses.
Personal loan approval is typically based on factors like your income and general creditworthiness.
Pros and cons of using a personal loan
Pros
- Wide array of rates and terms available
- Funds can be used for a variety of purposes
- Doesn’t consider your business’s financials
Cons
- Comes with personal liability
- May have lower borrowing limits compared to business loans
- Missed payments can negatively impact your credit score
What is a business loan?
Business loans can help support small business owners by providing funds specifically for business-related expenses. That may include short-term growth as well as long-term project financing, such as relocation or expansion, and day-to-day expenses.
Business loans are typically separate from personal finances, and the business is responsible for payments. That said, lenders typically require the applicant to provide a personal guarantee. If the business is unable to pay, the applicant would be responsible for those costs, which could impact their finances.
Lenders typically consider your personal credit as well as your business finances when evaluating your application for a business loan. You may, for example, need to provide both personal and business tax returns in your application.
Pros and cons of using a business loan
Pros
- May provide larger loan amounts compared to personal loans
- Can help you build business credit
- Funds must be used for business purposes
Cons
- Generally requires a personal guarantee
- May consider business credit
- May require collateral
What are the differences between a personal loan and a business loan?
Although you may use either a personal loan or a business loan to cover business expenses, there are key differences here that may help you decide between them:
| Factor | Personal loan | Business loan |
|---|---|---|
| Best for | Personal expenses or limited business use if allowed by the lender | Business-related expenses |
| Approval factors | Personal income, creditworthiness and debt obligations | Business financials, business credit and sometimes personal credit |
| Borrowing limits | May be lower than business loans | May offer higher loan amounts |
| Credit impact | Can affect personal credit | May affect business credit and personal credit if personally guaranteed |
| Use of funds | Depends on lender restrictions | Typically limited to business purposes |
| Collateral | Often unsecured, but varies | May require collateral or a personal guarantee |
When to choose a personal loan for business expenses
If you’re looking for a smaller source of funding or an application process that won’t require business financial documents, a personal loan may make more sense. Remember that you’re personally responsible for those loan payments, and missed payments can negatively impact your credit score.
Some lenders may allow personal loans to be used for business expenses, while others restrict business use. Always review the lender’s terms before applying.
Citi offers unsecured personal loans to both existing Citi® customers and new Citi customers who meet specific eligibility criteria. If you think you could benefit from a Citi® Personal Loan, apply online today or use pre-qualification to check your eligibility without harming your credit score.
When to choose a business loan
Business loans can be helpful to business owners who are looking to fund larger expenses, such as expansion through new equipment or day-to-day costs like purchasing supplies. These loans can also help you build business credit, which may allow you to access business products like lines of credit.
Business vs. personal loans: What to know before you apply
Before applying for a business loan or personal loan, take time to understand the loan terms, repayment schedule and potential credit impact. Citi's 2026 U.S. Consumer Cards Credit Trends Survey found that 46% of respondents felt as confused about using credit as they did 12 months ago, and 11% felt more confused. 38% strongly agreed that better education and tools would increase their confidence in managing credit.1 Reviewing the details upfront can help you feel more prepared before you borrow.
Take these steps before you apply:
- Confirm whether the loan can be used for your intended purpose: Business loans are generally designed for business-related expenses, while personal loan usage can vary by lender.
- Know what information you may need to provide: A personal loan application may ask for details about your identity, income, employment, housing costs and credit history. A business loan application may require additional documents, such as business tax returns, bank statements, revenue information, ownership details or a business plan, depending on the lender and loan type.
- Compare the full cost of borrowing: Review the loan amount, interest rate, fees, repayment term and monthly payment before making a decision. A lower monthly payment may seem appealing, but a longer repayment term could increase the total amount you pay over time.
Citi offers small business loans with flexible terms and fixed interest rates, subject to credit approval. Applicants must maintain a business checking account with Citi and businesses must be established and operating within the U.S.
If you're interested in applying, you may speak with a Citi Business Banker at your local branch or call to speak with a Citi customer service specialist for more details. Citibank Small Business Lending applications are available to new and existing Citi customers through your local Citibank branch. All loan products are subject to credit approval, which will require that the primary operating account of the business be held by Citibank, with authorization to debit for loan payments. Speak with a Citi Business Banker or Citibank Business Specialist at your local branch for more details. You can also visit the Citi® Small Business Lending website to learn more about relevant Citi products and services for business clients.
FAQs: Personal loans vs. business loans
Can I use a personal loan for business purposes?
You may have the option to use a personal loan for business purposes, but it depends on the lender. It’s generally best to check with your lender to understand how you may and may not use your personal loan funds.
Does a business loan affect my personal credit?
A business loan may indirectly impact your personal credit if a personal guarantee is required. If the business is unable to pay, you’d be on the hook for those payments, which could impact your finances and credit score.
What’s easier to qualify for: a personal or a business loan?
Given what’s required in the application process, it may be easier to access a personal loan than a business loan. Qualifications, however, can vary for both personal loans and business loans, depending on the lender.
How much is the monthly payment on a $50,000 business loan?
The monthly payment on a $50,000 business loan depends on the loan’s interest rate, repayment term and fees. For example, a $50,000 loan with a five-year term and 10% APR would have an estimated monthly payment of about $1,062 before any additional fees. A shorter repayment term may lead to higher monthly payments, while a longer repayment term may lower the monthly payment but increase total interest costs.
Does a business loan affect a personal loan?
A business loan may affect your ability to get a personal loan if the lender reviews your personal credit, debt obligations or income during the application process. A business loan may also affect your personal credit if you provide a personal guarantee and the business misses payments. If you’re planning to apply for both types of financing, consider how each loan could affect your total monthly obligations.
Is a business loan or personal loan better?
A business loan may be better if you need funds specifically for business expenses, want to build business credit or need a larger loan amount. A personal loan may be easier to apply for if your business is new or doesn’t have established financials, but lender restrictions can vary. Review the terms carefully to make sure the loan you choose allows your intended use of funds.
Citibank Personal Loans
Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional factors determined by Citi. If you think you could benefit from a Citi® Personal Loan, apply online today.
This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
1 Citi Consumer Credit Trends Survey, pages 10 and 20. Available at:
Citi Consumer Credit Trends Survey
